WASHINGTON -- Investors know a good thing when they see one. That's why they are lining up in droves to get their hands on thousands of government-held problem loans and foreclosures under Uncle Sam's mortgage-to-own initiative.

The deal makes sense for the government and investors, most of them private investment funds. The government moves its bad FHA, Fannie Mae and Freddie Mac loans off its books, while investors have an opportunity to buy these assets at a deep, deep discount.

The investors will work the bad loans, trying to get people to pay. But if they can't, owners will be offered the option of staying on as renters instead of moving out. Nonpaying "guests" who haven't made a mortgage payment in months also will be offered the opportunity to remain as renters.

It's all designed to clear the "shadow" inventory that hangs over the housing market, create something of a floor for home prices and push the market back into gear. Even lenders are getting in on the act, allowing at-risk borrowers to remain as tenants as an alternative to foreclosure.

But is mortgage-to-lease a good option for consumers? As usual, it depends.

Certainly it is a more compassionate option for financially strapped owners, who can use the tool to move on with whatever dignity they have left. They can rent their homes rather than move out.

If, after a few years, they straighten out their credit records and get back on their feet financially, perhaps they can buy back their homes. If they still can't afford the place, perhaps they can find something else they can afford, or move to another rental.

But renters beware. There could be pitfalls:

-- Under what terms can you repurchase the house? It's impossible to say what the place will be worth in the future, so setting a price now is probably out of the question. But the contract needs to contain some kind of formula for determining the eventual selling price. Whether you and the landlord agree that the selling price will be a certain percentage of a future appraised value or come up with some other way to determine the price, you need to decide on the method upfront and get it in writing.

-- What are the terms of the lease? Obviously, the length of the lease is a major factor. A year may not give you enough time to get back on your feet.

Bank of America's pilot program in Arizona, Nevada and New York allows delinquent borrowers to remain in their homes up to three years. Under the more conventional House-to-Home lease-to-own program operated by Landsmith, a San Francisco-based real estate fund, tenants have six years to complete the deal.

Another key clause: Will the rent increase from year to year? If so, by how much or what percentage?

-- What kind of fees will be involved? Will you be required to put down a security deposit? Will there be an exit fee?

Also, will any part of your rent be counted toward the down payment or purchase price if you decide to buy back your place? In a typical rent-to-own program, a portion of the rent is set aside as the tenant's equity in the place. But that might not be the case in a mortgage-to-lease program, or the set-aside might be an add-on.

-- Who will manage the property? Who will be responsible for maintenance and upkeep, and who will be responsible for major repairs?

Judging by the problems some jurisdictions have had with getting lenders to maintain their REO, or real estate owned (a euphemism for foreclosures), banks have not been very good at property management.

James Breitenstein at Landsmith says that is changing. "Expertise in (property management) is coming up very quickly," he says.

But still, it's not like the houses involved in a rent-to-own program will be side-by-side in a single development. Rather, the properties will be scattered across a large geographic area, making them more expensive to run. So it may prove difficult to get a faulty water heater or broken window replaced.

-- Will the investor sell the home to another, possibly less benevolent, investor? While investors tend to buy and hold, hoping the property will increase in value, lenders who offer mortgage-to-lease programs probably will want out as soon as possible.

Once lenders "stabilize" the property with a qualified renter, they will want to cut their losses and run. So you want to make sure that any subsequent owners will be bound by the terms of your lease.

-- Will you continue to owe any part of your outstanding loan balance? In return for being allowed to remain in the house as a tenant, you will be required to sign over title to the property. It's a cleaner break than an eviction, or even simply handing the keys and deed back to the lender and moving out.

But will the investor forgive what you owed on your mortgage? How much -- all or just a portion? And under what terms will you have to pay back the rest?

"Why would anyone consider participating in a mortgage-to-lease program unless their mortgage debt was completely canceled?" says Joe Buczkowski of LeaseRunner, a Web application that combines leasing and rent collection into one paperless process.

Realize, too, that any amount of mortgage debt that is forgiven is considered taxable income by the IRS. Under the Debt Relief Act of 2007, you can exclude as income up to $2 million in canceled debt. But the exclusion expires at the end of the year, and as of now, there seems to be no appetite in Congress to extend it.

-- What is your exit strategy? If you opt to remain as a tenant, the experts agree that you should plan for the worst, just in case. Use your time as a renter to save as much money as you can. That will allow you to make a smoother transition into new digs if you have to move on or put more cash into repurchasing your home.

"Start saving now," advises Alex Matjanec of MyBankTracker.com, a consumer-centric website that brings transparency to the often clandestine banking world.

There's no question that the Internet has changed the way most people shop for homes. You can find houses online, take a virtual look around and plot their locations in relation to your kids' schools, the church of your choice or even your favorite coffeehouse.

Now the Web is taking it up a notch with software that allows new homebuyers to "build" their dream house. You can pick our your favorite lot, choose from several models and customize the place to your heart's content, all while sitting at your computer.

Then you can print out the final results, take them to the sales office and you're off and running.

Not every builder offers customization portals. In fact, they are far from universal. But enough companies are starting to adopt the concept that it is becoming a trend.

While online simulators like Blu Homes' 3-D Configurator or Kova Solution's WebPro aren't likely to replace honest-to-goodness model homes, at least not altogether, they seem destined to change the way builders operate. After all, research shows that today's buyers, especially the younger ones, want an interactive experience.

Blu Homes, a builder of novel modular homes, is no stranger to innovation. The company ships its products anywhere in the country from its factory in Vallejo, Calif. The modules are 8 feet wide instead of the standard 13, so shipping costs are much cheaper than conventional, wide-load sectionalized houses. The modules are also built on sturdy steel frames and unfold when they arrive to 19 feet, with ceilings as high as 16 feet. Each section comes almost completely finished, including plumbing and electrical systems, and they are assembled by Blu's own construction crews.

But even more inventive is the software the company employs that allows would-be buyers to pick and personalize any of its seven precision-built models. Blu's realistic, three-dimensional configurator is very similar to the software used by such elite industrial giants as Ford and Boeing, according to co-founder Maura McCarthy.

"We are a technology company that builds houses," says McCarthy, who was trained as an economist at Georgetown University and has worked with Alan Greenspan. "Boeing used to build test planes. Now it builds virtual test planes, and we do the same thing with our houses."

With the configurator, you can change finishes, appliances, cabinets, hardware, countertops, window treatments, lighting packages and flooring, all until you find exactly what you are looking for.

Several more traditional "stick" builders are using similar software.

S&A Homes of State College, Pa., uses interactive smartPLAN technology developed by San Francisco-based Graphic Languages. The system allows users to pick a community, pick a house and then make changes, such as adding a fireplace or extending the breakfast room.

The program, which even lets you virtually furnish bedrooms, living rooms and dining rooms, "has been very, very popular; very successful for us," says Ashleigh Shetler, head of marketing for S&A.

Oakwood Homes in Denver, American West Development in Las Vegas and Hayden Homes in the Pacific Northwest are among a handful of builders that use Kova's end-to-end software system. It guides buyers through product and community options, including selecting the site, plotting the house, picking the elevation, making changes and selecting upgrades. It even allows you to pick a color scheme.

"Our homebuyers are fully involved in the customization process," says Kendra Saffle of American West.

Not only does the interface allow you to see floor plans and elevations, but it also tracks which options interfere with others. You might not be able to select a second-floor bonus room, for example, if you've picked a vaulted ceiling for the room below.

"This technology ensures that the options the buyers choose are compatible with the homes they have picked," says Ray Appel, senior IT manager at Oakwood.

And it is completely mobile, available anytime from a smartphone or iPad. That view-it-anywhere flexibility can benefit both buyers and sellers. America West almost lost a deal when a long-distance buyer could not envision the plan he wanted being flipped around, but when he was able to see the reverse plan of the house online, the sale was saved.

Once you've settled on your dream house, you can print out a brochure and take it to the sales office, where an agent has already been assigned to you. Here, your house, just as you picked it, becomes a contract and then a sales order that is the basis for estimating, bidding, purchasing and scheduling, so there is less room for errors along the line.

The program follows the sale all the way through to customer service warranty work after you've moved in.

If there is a drawback with virtual homebuilding, it's that some builders fail to include pricing. Kova says its clients purposefully leave out prices for competitive reasons. But truth be told, they want you in their sales office before they talk about costs.

S&A, the Pennsylvania-based builder, shows base prices only. You'll have to talk to a live person to price any changes. Blu, on the other hand, is completely transparent, showing not just base prices but how the cost changes with each and every item that is moved, selected or deleted.

But buyer beware: Playing around online could be costly. Blu's McCarthy says that buyers are spending $25,000-$50,000 more per house ever since real-time pricing was implemented. Why?

"Because when they control it," she said, "they feel more comfortable with it."

Faced with an unprecedented opportunity to help Americans find the road to financial security through homeownership, policymakers are looking the other way, according to a new report from a New Mexico nonprofit housing agency.

Instead of fostering programs that would help would-be homebuyers take advantage of record-low mortgage rates and rock-bottom housing prices, the report from Homewise says lawmakers and regulators are focusing on policies that "give significant competitive advantages to investors."

"We should be hearing calls for a renewed commitment to homeownership," says Michael Loftin, the report's chief author and executive director of Homewise. "Instead, federal housing policy has left behind its historic commitment to helping the middle class access homeownership in favor of another round of investor speculation."

The white paper from an obscure Santa Fe agency that promotes ownership though financial counseling and educational classes gains credibility here because it puts its money where its mouth is. Because Homewise invests its own capital in the process, it has what is called "skin in the game."

Homewise provides qualified buyers with amortizing second mortgages so they can meet today's tough lender loan-to-value ratio requirements. The second mortgages allow buyers to purchase with smaller down payments. Because the agency stands to lose if the buyer loses, it creates a strong incentive for Homewise to do a good job preparing people for long-term success.

Gambling that house prices would rise forever is arguably at the root of the housing debacle. Gamblers included not only investors who thought they could make a quick buck by buying today and selling tomorrow, but also families who overreached by buying more house than they could afford or opting for risky financing so they could take part in the game.

Now, in an effort to clear the blight that the millions of foreclosed and vacant houses have left upon the land, the government is pursuing programs that will allow investors to swallow swaths of single-family houses in one fell swoop.

The idea, of course, is to get these places occupied and off the books. But turning too many homes into rentals could put a drag on the housing recovery, the Homewise paper warns. And just at that rare moment when millions of working stiffs can finally afford sensible homeownership, author Loftin says public policies now favor what could easily turn into another round of speculation.

Investors realize that today's market presents an exceptional opportunity. Just last month, the Federal Housing Finance Agency reported "strong qualified bidder interest" in its pilot program to sell some 2,500 foreclosed homes owned by Fannie Mae in geographically concentrated locations across the country. But in the process, individual buyers, and even organizations like Homewise that are in a position to help families purchase their first homes, are being shoved aside.

"Cruel irony," Loftin says. "The strategy is particularly galling to community advocates who watched subprime lenders reap billions in profits by exploiting vulnerable neighborhoods and are now watching those same neighborhoods again exploited by investors who have a competitive advantage because of federal policies, restrictive lending practices and sheer financial might."

The Homewise white paper notes that the "historic and painful" housing bust has eroded confidence in ownership, to the point where many question whether the average family should buy a home, can buy a home or even would want to buy a home. Even long-standing housing advocates wonder whether ownership is a smart financial choice.

Considering the current market conditions, Loftin says "the better approach" is to pull away from the crowd and consider the implications of ownership as a tool to long-term financial stability. Do that, he argues, and you will see that the historic combination of low house prices and loan rates, combined with the enduring benefits of ownership, have created a unique opening -- "a golden opportunity" -- for middle-class families.

The benefits of owning over renting, beyond satisfying the basic human need of safe and decent housing, have been well-documented but bear repeating.

-- Stable housing costs: Whereas rent is unpredictable, subject to inflation and market fluctuations based on supply and demand, mortgage payments are relatively stable. For owners, the only portions of the house payment subject to change are taxes and insurance. The larger part of the payment, the amount paid to principal and interest, never changes, at least with the traditional fixed-rate mortgage.

-- Wealth building: Because part of each house payment goes toward principal reduction, increasing the owner's net worth each month as the loan is paid down, ownership serves as an automatic savings plan. In contrast, the amount a rental payment adds to the tenant's bottom line is, and always will be, zero.

-- Appreciation: As the house rises in value, so, too, does the owner's stake. Yes, the property can lose value, as we have painfully seen over the last five years. But even modest appreciation has a powerful cumulative effect, and it comes on top of the forced savings noted above.

-- Leverage: This is perhaps the most powerful wealth-building feature of all. Even though the owner pays only a portion of the home's value upfront in the form of a down payment, he benefits from appreciation on the entire asset, amplifying his total return.

"Homeownership is an incredibly powerful engine," the white paper says. "The opportunity for working families to achieve financial security through homeownership is too great to ignore. A national strategy of developing homebuyers and providing them with effective financing would help working families take advantage of today's affordability, and would help communities rebuild from the subprime and foreclosure crisis."

Unfortunately, Loftin doesn't expect federal housing agencies to take the lead in developing a coherent policy or advancing some bold strategy. That's just not realistic, he says. "History has shown us that these agencies are not readily adaptable or fleet of foot, and their current reaction to the problem only confirms this trend."

Instead, he believes the task of developing an effective strategy to support homeownership will once again fall to private nonprofits like Homewise, organizations that have been helping people become owners for years.

"The homeownership community has taken on many daunting challenges over decades without losing sight of our founding missions," Loftin says, "and we should rally again to take on this next challenge."